Dr. Reddy's Laboratories Q2 25/26 Earnings Call Transcript

Quartr
Provided by Quartr
October 24, 2025

Key Takeaways

  • Positive Sentiment: Delivered a steady quarter with consolidated revenue of INR 8,805 crore (+9.8% YoY), EBITDA margin of 26.7%, PAT +14% YoY and a net cash surplus of ~$310M, supporting balance-sheet flexibility.
  • Negative Sentiment: North America generics faced significant pressure — US revenue fell ~16% YoY due to product-specific price erosion and lower lenalidomide sales, and management expects remaining Revlimid-related decline to persist into Q3 (with some tail into Q4).
  • Positive Sentiment: Progress on key pipeline/biosimilars — semaglutide received SEC recommendation in India, EMA gave a positive opinion for denosumab, and the company plans an abatacept BLA submission by Dec‑2025 with a US CMO as a launch backup.
  • Negative Sentiment: Regulatory inspection risks remain — the US FDA issued observations/CRL items (including Form 43 for a biologics site and Form 83 for an API site) related to rituximab and other facilities, which could delay certain approvals or launches.
  • Positive Sentiment: Strategic M&A and commercial execution are boosting growth — the acquired consumer health/NRT business is being integrated (about two‑thirds by value) and India revenues grew strongly (+137% YoY) aided by new launches and brand buys (Stugeron ≈ INR100 crore).
AI Generated. May Contain Errors.
Earnings Conference Call
Dr. Reddy's Laboratories Q2 25/26
00:00 / 00:00

There are 16 speakers on the call.

Operator

Good day, and welcome to quarter two, fiscal year twenty twenty Limited. I'm Ashwara Sitharam, and I'm part of the investor relations team. I'd like to indicate that all participants will be in the listen only mode during the opening remarks, and there will be an opportunity for you to ask questions thereafter. Should you need any technical assistance during the call, please use the chat function in your Zoom application. Please note that the chat will not be monitored for any questions to the management.

Operator

I now hand over the conference to Pritchaparival. Thank you.

Speaker 1

Thanks, Ashwarya. Good morning, good evening, and a warm welcome to all. We hope you had a joyful and safe Diwali celebration with your loved ones. Thank you for joining us for Doctor. Reddy's Laboratories Q2 FY 'twenty six earnings conference call.

Speaker 1

We truly value your time and participation. Joining us today are members of the leadership team, Mr. Erez Israelis, CEO Mr. MVN, our CFO and the Investor Relations team. Earlier today, we released our quarterly financial results.

Speaker 1

These are now available on your website for your reference. We will begin today's session with MVN providing an overview of our financial performance for the quarter. Following that, Erez will share his insights on key business highlights and our strategic outlook. We will then open the floor for questions. Before we proceed, please note that this call is the proprietary material of Doctor.

Speaker 1

Reddy's laboratories and may not be rebroadcasted or quoted in any media or public forum without prior written consent from the company. This session is being recorded, and both the audio and the transcript will be made available on our website shortly. All commentary and analysis during this call are based on our IFRS consolidated financial statements. Please note that certain non GAAP financial measures may also be discussed. Reconciliations to the corresponding GAAP measures are included in our press release.

Speaker 1

Finally, a reminder that the Safe Harbor provisions outlined in today's press release apply to all forward looking statements made during this call. With that, let me now hand it over to MVN to present the financial highlights for the quarter. Over to you, MVN.

Speaker 2

Thank you, Avicha and Aiswarya. Good evening, and a warm welcome to all. Thank you for joining us on our Q2 FY 'twenty six earnings call. I'm delighted to take you through our financial performance for the quarter. We delivered a steady performance in q two, achieving near double digit growth despite lower lenalumide sales.

Speaker 2

The acquired consumer health care business supported the top line momentum. EBITDA margin stood at 26.7% for the quarter. All financial figures in this section are translated into US dollars using a convenience translation rate of 88.78 rupees 78 paisa. The exchange rate prevailing as of 09/30/2025. Consolidated revenue for the quarter stood at 8,805 crores, which is US dollar $992,000,000, a growth of 9.8% year over year and 3% on sequential basis.

Speaker 2

While US generics faced pressure from product specific price erosion and lower linamides sales, overall growth was supported by the integration of consumer health care business and double digit growth delivery across other markets aided by favorable forex. Consolidated gross profit margin for the quarter was 54.7%, a decrease of four ninety two basis points year over year and two twenty three basis points sequentially. The decrease in margins during the quarter was due to lower linamite sales and product specific price erosion in The US generics. Onetime inventory provisions from the discontinuation of the certain pipeline products due to technical challenges and lower operating leverage in PSI business. Gross margin was 59.1% for global generics and 18% for PSAI.

Speaker 2

The SG and A spend for the quarter was rupees $2,006.44 crores, which is US dollars $298,000,000, an increase of 15% on year over year and 3% on a sequential basis. The year over year increase was primarily driven by focused investments in the acquired NRT consumer health care business and in branded generics, which are key to driving sustainable growth. SG and A for the quarter includes a onetime portion of rupees 70 crores for a VAT liability in one of our subsidiaries and charge charges related to the discontinued pipeline product. SG and A spend accounted for 30% of revenues during the quarter and was higher by one thirty two basis points year over year and similar levels on a sequential basis. Excluding the one offs related to ad promotion, SG and A expense as a percentage of revenues was at 29.2% in q two FY twenty six.

Speaker 2

The r and d spend for the quarter was $6.20 crores, which is US dollar 70,000,000, a decline of 15% year over year and broadly flat sequentially. The decrease was due to reduced development, spends on biosimilars during the quarter as major investments for abatacept have already been completed. We continue to make focused r and d investments in complex generics, APIs, and biosimilar pipeline while pursuing strategic collaborations to bring innovative assets that support sustainable long term growth. The r and d spend was 7% of revenues for the quarter, lower by, 203 basis points year over year and 26 basis points on a sequential basis. Other operating income for the quarter was rupees $2.67 crores, higher than rupees 98 crores in the corresponding quarter last year.

Speaker 2

This was mainly an account of product related IP settlement income in The United States and onetime reversal of 88 crores in liabilities related to discontinuation of the pipeline product. EBITDA for the quarter, inclusive of other income, stood at, rupees $2,003.51 crores, which is $265,000,000 an increase of 3% on year over year and a sequential basis. The EBITDA margin stood at 26.7%, lower by 174 basis points on year over year and flat sequentially. Adjusting for the onetime VAT provision mentioned earlier, the underlying EBITDA margin was at 27.5%. Impairment charge was INR 66 crores, including INR 54 crores for property, plant, and equipment at our Middleburg facility following the discontinuation of the pipeline product, conjugated estrogen.

Speaker 2

The remaining charge pertains to a product related to intangibles impacted by adverse market conditions. The net finance income for the quarter was, lower at 77 crores as compared to $1.56 crores for the same quarter last year. The decline in net finance income reflects lower returns from financial investment following a deployment of cash reserves towards acquisition of consumer health care business and other intangible assets in line with our capital allocation strategy. As a result, profit before tax for the quarter stood at rupees $18.35 crores. That is US dollar $2.00 7,000,000.

Speaker 2

PBT as a percentage revenues was at 20.8% on on an adjusted basis. Excluding the onetime VAT portion, the PBT margin was at 21.6%. Effective tax rate for the quarter was at 22.2% compared to 30% in the corresponding period last year. The ETR for Q2 FY twenty six was lower primarily due to favorable jurisdictional mix for the quarter. The ETR in the corresponding period last year was higher due to reversal of previously recognized deferred tax asset related to land indexation following amendments introduced through the Finance Act 2024 to Income Tax Act 1961.

Speaker 2

Profit after tax attributable to the equity, holders of the parent for the quarter stood at rupees $14.37 crores, which is $162,000,000 US dollars, a growth of 14% on year over year, flat on q o q basis. This is at 16.3% of revenues. Diluted EPS for the quarter is rupees 17 point, 25. Operating working capital as of thirtieth September two thousand twenty five was rupees $13,003.31 crores, which is in US dollars 1,500,000,000.0, an increase of 3 crores, which is like a US dollar point zero point 4,000,000 over thirtieth June two thousand twenty five. CapEx cash outflow for the quarter stood at rupees 511 crores, which is 58,000,000.

Speaker 2

Free cash flows generated during the quarter was rupees $10.46 crores, which is 118,000,000 US dollars. As of September 30, we have a net cash surplus of, rupees $2,007.51 crores, which is like a 310,000,000 US dollars. Foreign currency cash flow hedges executed through derivative instruments during the period are as follows. US dollar, $5.00 2,000,000 hedged using combination of forward structure structure derivative contract scheduled to mature through December 2026. These contracts are hedged at the rate of 86.9 per US dollar.

Speaker 2

A ruble, 4,280,000,000.00 hedged at fixed rate of 1.03 per Russian ruble with maturity falling within next four months. With this, I request Erez to take us through the

Speaker 3

Thank you, MVN. Good day, everyone, and thank you for joining us today. We are pleased to report a consistent performance in Q2 FY 'twenty six, marked by a double digit growth and steady profitability. This performance was driven by contributions across all key markets, except for The U. S.

Speaker 3

Generic business. During the quarter, we continued to make a meaningful progress across our strategic priorities, namely growing the base, scaling our presence in consumer and health care, innovative therapies and biosimilars. We advanced our key pipeline programs, including semaglutide and abatacept. In addition, we have been driving initiative to enhance cost efficiencies across our operations while simultaneously pursuing business development activity to support sustainable growth in the coming quarters. Let me now walk you through some of the key highlights of the quarter.

Speaker 3

Revenue grew by 10% year on year, driven by broad based growth across businesses, benefiting from acquired consumer healthcare and supported by a favorable ForEx. Growth was partially offset by lower contribution from linadolamide and some price erosion in The U. S. In some select products. The EBITDA margin stood at 26.7%.

Speaker 3

The ROCE for the quarter was around 22%. The cash flow from operation was utilized to our plant expansions and acquisition of strategic brands and securing rights for distribution in defined markets. We closed the quarter with net cash surplus of $310,000,000 reinforcing the strength of our balance sheet. We strengthened our innovation led portfolio to strategic collaboration and launches. We entered the anti vertical segment with the acquisition of Stugeron and related brands across 18 markets in APAC and EMEA from Janssen Pharmaceuticals.

Speaker 3

In India, we strengthened our gastrointestinal portfolio with the launch of two novel drugs, tegopazan under the brand name of PICCUP and linaclotide under the brand name of Colozo. In partnership with UNITAID, Clinton Health Access Initiative and with RHI, we are working to make lenacapir, a long acting HIV prevention tool, accessible and affordable in low and middle income countries. We continue to make progress on our key pipeline product. The subject expert committee, the SEC, under Central Drug Standard Control Organization has recommended approval for semaglutide injection in India. We received a positive opinion from European Medicine Agency Committee for Medicinal Products for Human Use for denosumab biosimilar candidate.

Speaker 3

The U. S. FDA accepted our investigational new drugs IND application for KOYA-three zero two, a partnered novel drug for the treatment patient with ALS. We also made a steady progress on integrating the acquired nicotine replacement therapy business. We have successfully integrated twothree of the business by value, including Canada, Australia and selected key Western European markets.

Speaker 3

The next phase will include Southern Europe, Israel and Taiwan. On the regulatory front, several inspection were completed across our global facilities. In September 2025, the US FDA conducted a preapproval inspection on our Batchpulli biologics facility and issued a Form 43 with five observation. The agency recently issued a complete response letter in refer reference for to the ongoing resolution of observation pertaining to the biologic license application, the BLA, of our rituximab biosimilar candidate. We are acting, working to address these observations.

Speaker 3

The US FDA conclude a GMP inspection at our Meirfield API facility in The UK, resulting in issuing a Form eight-three containing seven observation. Additionally, our API site, CTO5 in Laguda, Telegana as well as our Middleburg facility in New York were classified as VAI following successful GMP inspection by the US FDA. The GMP and preapproval inspection, PAI, conducted by the US FDA in July 2025 at our formulation manufacturing facility, FTO-eleven, has been formally closed. We have received the EIR establishment inspection report with inspection outcome categorized as BAI. We continue to be recognized for industry leading performance in sustainability.

Speaker 3

We retained our MSCI ESG rating for A for the second consecutive year. Our ESG risk rating from Morningstar Sustainalytics improved from 23.6% to 18.4%, representing a lower ESG risk profile. Our waste management practices were recognized with the diamond standard for achieving 99.9% of waste diversion from landfills. Further, our formulation facilities at Sri Kakulam, FTO eleven became India's first pharmaceutical facility to receive a leadership in energy environmental design, platinum certification for existing buildings from U. S.

Speaker 3

Green Building Council. Let me take you through the key business highlights for the quarter. Please note that all financial figures mentioned are reported in their respective local currencies. Our North America generic business generated revenues of $373,000,000 for the quarter, a decline of 16% year on year and 7% sequentially. The performance was impacted by price erosion in selected key products, primarily linadolamide.

Speaker 3

During the quarter, we launched seven new products and expect launch momentum to continue in the second half of the fiscal. Our European business reported revenue of €135,000,000 for the quarter, growth of 150% on a year to year basis and 3% on quarter on quarter. The year on year performance was primarily driven by contribution from the acquired nicotine replacement therapy portfolio and new product launches, which offset the price erosion pressure the pricing pressure. Excluding the NRT, the gross was 6% year on year and quarter on quarter. During the quarter, we launched eight new generic products across European markets, further strengthening our portfolio.

Speaker 3

Our emerging market business delivered revenue of $16.55 crores in Q2, reflecting a growth of 14% year on year and 18% sequentially. Growth was primarily driven by new product launches across market and aided by favorable ForEx. During the quarter, we introduced 24 new products across multiple countries, reinforcing our commitment to expanding access and strengthening our market presence. Within this segment, our Russia business delivered a growth of 13% year on year and 18% sequentially in constant currency terms despite prevailing macroeconomic challenges. Our India business reported revenues of $15.78 crores in Q2, delivering a double digit year on year growth of 137% increase sequentially.

Speaker 3

This performance was driven by contribution from new product launches, improved pricing and higher volumes. According to IQVIA, we have moved up one place to the ninth position India pharmaceutical market for the month of September and continue to outpace market growth, with moving annual total MAT growth of 9.4% compared to IPM's 7.8% growth. During the quarter, we launched 11 new brands in addition to the acquired Stoegherone portfolio, further strengthening our domestic franchise. Our PSAI business reported revenue of $108,000,000 in Q2 FY twenty twenty six, registering growth of 8% year over year and 13% sequentially. During the quarter, we filed 37 Drug Master filed globally.

Speaker 3

We have further sharpened our R and D focus on programs that offer clear differentiation and strong commercial potential in alignment with our strategic priorities. We have rationalized few pipeline products that face extended regulatory uncertainty, limited market opportunity or increasing competitive intensity. Our focus is anchored around complex generic GLP-one molecules and biosimilar. In addition, we are actively pursuing strategic collaboration and partnership to enhance our innovation ecosystem, accelerate development time lines and expand our capabilities in emerging therapeutic areas. During the quarter, we completed 43 global generic filings.

Speaker 3

For the quarters ahead, we are focused on robust execution to deliver on our strategic priority, meaning grow our base business, focus on our key pipeline assets like semaglutide and abataset, improving operational efficiency and productivity across the value chain. And we continue to actively explore partnership and value accretive acquisitions that support our strategic vision and innovation momentum while enhancing our capabilities. These efforts are aimed to driving sustainable growth and delivering long term value for our stakeholders. And with that, I will welcome your thoughts and question as we move into the QA session.

Operator

Thank you very much, Erez. We will now begin the question and answer session. To join the question queue, please use the raise hand option available on the bar at the bottom of your Zoom application. If you wish to exit the question queue, you may click on the lower hand option. Participants are requested to not ask more than two questions at a time and to rejoin the queue in case of any incremental queries.

Operator

I would like to reiterate that the chat will not be monitored for any questions to the management. However, in case of any technical concerns, please do feel free to use the chat option to reach out to us. The first question is from the line of Neha Malpuria from Bank of America. Neha, please go ahead.

Speaker 4

Yeah. Thanks so much, Ashwabia. Good evening. My first question is on The US business. Know, while I know you talked about product specific erosion and, rev limit quarter on quarter, one, should we expect any rev limit at all in the third quarter?

Speaker 4

And, second question on The US business. You know, we've seen a product discontinuation, this year. Last year, saw no warranty discontinued. We continue to spend a fair bit on r and d. How should we think about the, you know, US product pipeline?

Speaker 4

Because, you know, if I look at Ready's approval history, while we have got a fair bit of approvals, we haven't really got any, you know, meaningful large launch approval outside of revenue. That probably was the last one that I can think about. So I just wanted your thoughts on how how we should look at, you know, some of these, more meaningful launches coming through, now that conjugated estrogen has been discontinued. You know, how do you think about the growth?

Speaker 3

So just, Neha, I think there was some thing with the voice. Just the beginning of your question, I got the rest of it. Just the beginning of your question, I I could not hear it. Sorry about it.

Speaker 4

Yeah. No. No problem. I I was asking that is it fair to assume that, there would be no rev limit in the third quarter, or would we still see some bits of rev limit as a part of the settlement in the third quarter?

Speaker 3

So we we should assume that we will have and the but less than what, was in this quarter. So and likely that it's either going to be the last quarter or maybe some tail that will go into q four. But, by and large, q three, will still have relevant in it. On the r and d question, first, I agree with you. We there were certain products that we tried for a while to get an approval.

Speaker 3

And as we did not get, we we kind of pulled the trigger on them. We can we kind of gave ourselves a certain time lines that if we don't, we just move on. As we speak, the main products in The United States as related to r and d will be the biosimilars. I think the main product in terms of a significant growth in The United States will be abadacept. On the small molecules, we do have meaningful products that are coming, primarily peptides, long acting peptides.

Speaker 3

Some of them, we missed the first to five, but they are still meaningful. The overall pipeline is about 100 product as we speak, give or take in the pipeline. And out of that, about, I would say, around 20 that will be considered what you call the complex generics. But as we discussed many times in the past, I it's hard to predict on this product. So your observation is correct.

Speaker 3

What we absolutely did is that we relook in our portfolio, and we are focusing on products that we believe that we have a good chance to be first to market as time will come.

Speaker 4

Understood, Erez, Erez. If I were to just extend this question then to, let's say, a seminar filing or a batch set filing, what gives you confidence on getting approvals on those filings, you know, even in case of a batch set now that, you know, we have got a CRM on the. I'm just wondering if I know there's only risk to approval, but how should we think about management's confidence in getting approval for, you know, semi in Canada or, you know, next year as we think about abatacept?

Speaker 3

So on Abatacept let's talk about Abatacept. I'll go to Sim after. On Abatacept, we are supposed to submit, the BLA, and, I'm very confident about it, in the December of this year, calendar year, end of end of December twenty twenty five, which is exactly the date that we aim to. Here, I have a high level of confidence. It's also important to us because it will open the door for us to launch also the SubQ, which is the more important SKU at the 2028, subject to settlement, of course, of the IP.

Speaker 3

The confidence come that we are not going worse only with Batchpulli, but, we increased the chance because we will have also for The United States a CMO that will make it, the product. I'm less concerned about the European approval because batch polyol was already by approved by European, but not yet by the US FDA. And, also, in the case of The US, we don't yet know what will happen with the tariff on biologics. While, we feel now more comfortable giving all the press that, likely, there will be no tariff. We need to see when the guidelines will come.

Speaker 3

But as a biology, we don't know, and we feel the need to have a backup also there. So so we will if we'll not be able to launch from March, we will be able to launch from The United States, and this will enable us also a potential challenge if will happen on tariff. On the CEMA, we are expecting the feedback from Health Canada in the next few weeks. It can be any day, but it can be within the next few weeks, and we'll know if we get the deficiency or not. I'm certain that we will launch all the 12,000,000 pens that I discussed with you last time.

Speaker 3

Obviously, if it will not be in Canada, it will be in other places. So the launch is going to happen. The question, of if we'll get the CRL or we'll get something in Canada, obviously, the pricing may be different. But I'm confident that we will sell the product. The question is which market they will come.

Speaker 3

Can I guarantee that we'll not get the CRL, though I cannot? I wish.

Speaker 4

Fair enough. Fair enough. Thanks so much.

Speaker 3

Yeah.

Operator

Thank you, Neha. The next question is from the line of from HSBC. Please go ahead.

Speaker 5

Yeah. Hi. I hope I'm audible.

Operator

Yes. Yes. Absolutely.

Speaker 5

Okay. Thank you for the opportunity. My first question is again on semaglutide. So, Harish, can you remind us the legal status, which was underway in India, litigation with Novo on semaglutide?

Speaker 3

Sure. We are we are challenging the the patents in India, and it's in the currently in the high court in Delhi. All the hearings were done, and we are waiting for the desire, the decision of the judge. We don't know exactly when she will submit her decisions. And likely that we'll ever will not like the decision, we'll appeal.

Speaker 3

So likely that it will continue after. But, at this stage, the hearing are done, and, we are waiting for, the outcome of of of of the decision of the judge.

Speaker 5

And sure. And just to clarify, this outcome should not be impacting your plans in the ex India market. Right? The markets outside of India?

Speaker 3

Depends what will be the decision of the judge. What we are seeking, we believe that the patent, is invalid. And in any case, as we speak today, by the decision that was done in May, we are we can produce and export, not to do it in India, but the court in the decision back in May on the allowed us to continue to make the product and to export it. The in terms of, in the current state, we can launch in India only at patent expiration, which is right now dated to March 26.

Speaker 5

Okay. That's clear. My second question is going back to abatacept. So just clarifying earlier discussions. So did you mention you have a CMO in place to manufacture that product in case Bachupali takes some time to get the clearance from the FDA?

Speaker 5

Or what is arrangement? Like, what kind of risk mitigation strategies are in place?

Speaker 3

Sure. Correct. So we will have I I did mention that. We will have a CMO in The United States to produce abatacept in addition to our capacity that is built in Batchbulli, India. And it's mitigating three

Speaker 5

Hello?

Speaker 3

Yeah. Sounds good. You hear me now?

Speaker 5

Yes. I can hear you now.

Speaker 3

Okay. Same. It's it's addressing three three risks. One is in a case that will be, again, CRL or any regulatory challenges that we will be able to launch from already approved FDA site in America. Second, if there will be any tariff or any other potential restriction or regulatory burden as it's related to make or sell bus in The United States.

Speaker 3

And the number three, for to increase capacity. It's allowing us more capacity in the case that we will get a nice market share. So we're absolutely going with the CMO option in The United States.

Speaker 5

Okay. That's helpful. And my last question is for sebaglutide, I understand you're working on, your fill in in house fill in finish capacity. So can you share the update on that project?

Speaker 3

It's not it's it's going on. It will not impact the launches in the next twelve months because by the time that we will have to submit and qualify, it will be post approval in all the countries. So the are working with the partner that we have today. This is the famous 12,000,000 units that we discussed in the past. This is still relevant, maybe with some upside.

Speaker 3

But right now, I think we are about the same range. And, this will happen with the current partners, but we will have two cartridge lines in FTO 11, and this will be significantly expanded capacity, to many, many more millions. But let's see that we let's say, in that respect, it can go to even up to 50,000,000, but it's all theoretical at this stage. It will be relevant not for the next twelve months, but for the period after that.

Speaker 5

Sure. That's helpful. I'll get back in the queue. Thank you.

Operator

Thanks, Dabayanti. The next question is from the line of doctor Bino Patiparagal from Elala Capital. Biru, please go ahead.

Speaker 6

Hi. Good evening, all of you. First question on the India market, India business, it had a strong growth in the quarter. Is there anything in particular that helped you? And was there any impact related to the GST disruption in the quarter?

Speaker 3

So we managed well we managed well the GST. So the GST was not a significant obstacle for us. We managed it well. It's just execution of our strategy the way we discussed it for many quarters. We identify the therapeutic areas that we want to focus on, and we made several inorganic moves to buy brands that allow us relevant access, so as well as licensing of innovative products and just working well, and it's likely to continue.

Speaker 3

We said all along that we believe that innovation will allow us to outpace the market, and we feel very, very comfortable now about that strategy. I think more and more people see that now.

Speaker 6

Understood. You have recently done this acquisition of the Stajirong brand from Janssen. Could you give some idea about what sort of revenues does that business have in its acquired form?

Speaker 7

So

Speaker 3

it's a it's a 100 plus in terms of size, something like that.

Speaker 6

$100,000,000?

Speaker 3

No. 100 CR. 100 CR. CR. This is in India.

Speaker 3

Yeah.

Speaker 1

India and India. Yeah.

Speaker 3

India and India.

Speaker 6

That is India. Okay.

Speaker 1

India and India and emerging markets put together.

Speaker 6

It's 100 CR. And for that, if I'm right, you paid 15,000,000 US dollars. Correct. Okay. Understood.

Speaker 6

And any any benefit of that in the growth for the quarter? Is some twenty days of that part of India business?

Speaker 2

Not much.

Speaker 3

No. No. It's it was very Insignificant. Yeah. You can take it as no no real impact.

Speaker 6

Got it. And my last question on, the margin outlook beyond Revlimid. Of course, we keep asking this every quarter. But if you look at current quarter, even with lenalidomide, if we remove the other income from the EBITDA margin, it is, you know, below 23%. And with lenalidomide further coming down in the next quarters, it may fall even further.

Speaker 6

So do you still fully stick that for full year FY '27, you will get back to 25% EBITDA margin?

Speaker 3

I'm not sure how did you get to the 23%. I'm aware of 26.7%. But never mind yeah. Absolutely. Linadolamide is with higher margin.

Speaker 3

Everybody knows that. And, naturally, it's impacting. And anticipating that, we we are discussing for four years. We knew exactly when Lina is going to go, and it's happening exactly as we discussed. We are addressing it with the lever that I mentioned, going the best, contain the course, BD, and focus on these key products.

Speaker 3

I absolutely believe, and I'm maintaining it, that in the next two years, we will absolutely get back to, to the growth and to the margins. The question is, what will be the journey in this point of time? The more CEMA we will have, the more growth we'll have, the more BD we'll have, we can actually do it much, much faster. So we are maintaining our commitment for the margins. We are maintaining our commitment for growth.

Speaker 3

The question is what will be the scenarios between CEMA, Bataset, NBD primarily. And, of course, because on the levers that we can control better, we are very confident that this is the base and the cost.

Speaker 6

Understood. Thank you. I'll turn back, Vicky.

Operator

Thanks, Pito. The next question is from the line of Sai Mukherjee from Nomura. Sai, please go ahead.

Speaker 8

Yeah. Hi.

Speaker 9

Thanks for taking my question. So my first question is on The US based business. You know, there has been a lot of price erosion over the last, you know, three, four years since you have launched Revlimid. How is the base today versus, let's say, before Revlimid? Is it up, down?

Speaker 9

If you can give some color so that we get a sense where we should, you know, assume the number post Revlimid.

Speaker 3

Sure. So so it it went down. It went down primarily not so much on volume. There were some products, about, I think, five that faced competition and price erosion, and that's what took it down. It's not significantly down.

Speaker 3

Most of the decline that you see is Lina, elinodulomide. But if you want to compare, it is down.

Speaker 9

And do you see, it's sort of stabilizing now from the current level, or do you think there is scope for for the price erosion? And if you can just give some color on the pricing dynamics in The US at this point. Anything has changed?

Speaker 3

No. No change. I think it's stabilized. And I believe that it stabilized also for a while beside the products here and there. But, yeah, I I don't foresee additional trends like that in the coming quarters.

Speaker 3

On on the base products, the erosion that will be will be on some of the launch products. The products that we launch, those can still face erosion because not all of them, what you call, exhausted their potential erosion. But they seem significant, as we speak.

Speaker 9

Okay. My second question is on CEMA. This 12,000,000 that you mentioned, you feel confident about selling. So if not in Canada, where will this volume be absorbed in your view? Which markets?

Speaker 3

Sure. So we we are going to, either directly or to partners, going to obtain approval in the next, let's say, twelve to fifteen months in 87 countries. Most of them are very small. The notable countries, besides Canada will be India, Brazil, Turkey. And then we have partners that are selling in several countries of Latin America, so I cannot highlight a particular market and also in Asia.

Speaker 3

We have also b to b partners that also preparing their own launches, and we have partners on both the API as well as on those plans. So I believe that that the main markets that I mentioned can take, let's say, the lion's share of this quantity depends, of course, on the success and how and and the date that we'll actually launch. And the rest will be taken by the b to b parties. Also, the markets that I mentioned are divided to two types of countries, the the COPP countries and the non COPP countries. So it will be a certain sequence in which it will come to play.

Speaker 3

So far and in the demands that we have, we have already just the orders that we are discussing. It gives me confident that if the approvals will come, that we'll be able to send it. Yes.

Speaker 9

And, Erez, if I can just add, like, this is for 2026. Now what about 2027? How does this 12,000,000 move up in 2027 in your estimate?

Speaker 3

So it can move up, even to, for sure, to 15, but it can move up even further than that, depends on the evolution of the product. And the qualification of FTO 11, which will significant ramp up the capacity, will be in, toward the 2027. I'm talking now calendar, not FY.

Speaker 9

Understood. Yeah. Thank you. I'll join. Bye.

Operator

Thanks, Sam. The next question is from the line of Madhav Marta from Fidelity International. Madhav, please go ahead.

Speaker 10

Hey. Good evening. Thank you so much for your time. I wanted to understand a bit on the, you know, I think we've delivered double digit growth in the ex US markets. Are we confident of maintaining this trajectory over the next one or two years?

Speaker 10

That's my first question.

Speaker 3

Yes. Very much so.

Speaker 6

Okay. And

Speaker 10

could you highlight any key drivers? Like, do we have, like, new launches lined up, or what can help that steady growth? Because India, especially, 13% was was quite a good number, so, ahead of market. So just wanted to understand what could drive is it. Yeah.

Speaker 3

So each one of the markets, we have different drivers. So, like, if you want, I can highlight the markets for you, the main markets. In Europe, it's primarily a combination of the NLT business, the leverage of The U. S. Portfolio in which the pipeline is coming up and the launch of biosimilar rituximab, lenosumab and bivasubavam that we had in The UK.

Speaker 3

In the case of India, it's obviously the it's primarily our inorganic move that we made on innovation and the acquisitions of brands that we did in addition to a normal growth that we had on the legacy pipeline. So I always mentioned that in India, our legacy pipeline will be like the market, and what we are adding value is in the places in which are bringing products better than the standard of care. This is the strategy. And and now that we accumulate enough of those, it's starting to be shown. It took us, as I am sure, we all remember, quite a few years to build that.

Speaker 3

In emerging markets, it's primarily, again, leverage of the generic business, especially on injectable and oncology as well as, biologics. All of our biologics go into emerging markets. And, in each one of them, we have, depends on the market, selective innovation that we also license as part of our deal with India. In the case of Russia, it's primarily our legacy brands as well as some licensing and acquisition that we made in Russia on both the OTC as well as the Rx. API is primarily the focus on peptides.

Speaker 3

And on both, there is also a lot of demand for the peptides on the API side. I hope I covered the the markets for you. If I forgot something, please.

Speaker 9

Got it. Makes sense.

Speaker 10

And my second question is just on abatacept. You said we can file submit the BLA by end of calendar year twenty five. So the phase three trial, I'm assuming, is complete now, we're expecting, sort of an update on that in terms of whether that's completed successfully, or how should we think about the progress on the trial itself?

Speaker 3

It should be completed very, very soon, and and so far, so good.

Speaker 9

Okay. Okay. Understood. Got it. And if

Speaker 10

we file on time and so, basically, the approval will be in line with the expiry in early calendar year twenty seven. That's how we should think about it.

Speaker 3

That's the idea. Yeah. Understood.

Speaker 8

Got Thank you.

Operator

Thanks, Madhav. The next question is from the line of Doctor. Kunal Davesha from Macquarie Capital. Just a moment, sorry.

Speaker 7

Yeah. Hi. Can you hear me?

Speaker 3

Yes. Yes, Konan, please.

Speaker 7

Yeah. Hi. Hi. Thanks for taking my question. Just the first one on a dataset.

Speaker 7

So, basically, the first filing that we'll do would be for IV version. Right?

Speaker 3

Correct. Correct.

Speaker 7

And what kind of the further development subcutaneous version would require?

Speaker 3

Can you repeat? Sorry. Yes.

Speaker 7

For the for the subcutaneous version, what further development

Speaker 3

There is a there is another set of tests that allow us to submit the sub the the sub q, but it doesn't require additional study.

Speaker 7

Okay. So no phase three, but some form of characterization, etcetera.

Speaker 3

Correct.

Speaker 7

And and the first of filing that we'll we'll do by December 2025, would that include Bachupali as a manufacturing source or the CMO as a manufacturing source?

Speaker 3

Batchupoli. Batchupoli will be start, and the and the and the the CMO will be a tech transform form, Batchupoli.

Speaker 7

Okay. Tech transform form. Right? So so then it it might so Batchupoli would be still the key keystone for us in a way. Yeah.

Speaker 3

But in The United States, I'm absolutely building that we will have be able to be especially for the sub q. Mhmm. The the c the CMO will be, enable us day one launch.

Speaker 7

Sure. Sure. For the

Speaker 3

mitigation that we discussed before. Yeah.

Speaker 7

And the second one on semaglutide Canada. So, basically, Abhinav, let's say, over the last since we talked in the the earlier q one earnings call, Your expectation about the market formation, has that changed now on the day of patent expiry, or how should we think about it given that there are more filers whose filings have been accepted, by the regulatory authority in Canada?

Speaker 3

No. So so nothing changed, at least in my perspective, just to make sure that that that, we are expecting the market to be competitive. There will be multiple players. The question is just the day they will get approval. So the it's all about that.

Speaker 3

That did not change. I believe that the market formation will be as expected. We'll we'll once there is an approval, there is an application for reimbursement. And according to the words in Canada of the pricing, that's how the market will play. So nothing changed in the way I think the game will be played.

Speaker 3

It's now it's about obtaining approval and obtaining a good outcome from the litigation in India.

Speaker 7

Sure. And lastly, on India, for SEMA, when I look at we we have basically conducted trial for Ozempic and Rybelsus. So does that enable us to launch the weight loss version, which is Wegovy as well?

Speaker 3

For Wegovy, we'll have to have an application by itself. We'll have to

Speaker 7

It it would be a separate application.

Speaker 3

It will be separate.

Speaker 7

Okay. Perfect. Thank you, and all the best.

Speaker 3

Thank you.

Operator

Thanks, Kanal. The next question is from the line of Tushar Malutane from Motital Uswal Financial Services. Tushar, please go ahead.

Speaker 8

Yeah. Am I audible?

Speaker 9

Yes.

Speaker 8

Thanks. Thanks for the opportunity. So just on, you know, steady robust traction of biologics across European markets and Indian market, if you could just highlight how much has been the total biologic sales across different markets, on an annualized basis in date.

Speaker 3

I I sorry. Is something in the voice is to look? Sales. How the you just to make sure you ask how our sales evolve in India and Europe, that's what they ask. The question is?

Speaker 8

So biologic sales, cumulative biologic sales across

Speaker 3

The market or us? I'm I'm sorry. Sorry. Our sales. Yeah.

Speaker 3

So so we we launched in the in Europe. Hopefully, I'm answering correctly. We launched in the Europe, bibosusumab and recently rituximab in the in the in multiple countries, and we will increase the numbers of the countries as time goes by. And this is after we got the approval, the recent approval for rituximab for Europe. In India, in emerging market, we were always there.

Speaker 3

So it's it's it is it is going well. The main program that we will launch in Europe will be denosumab and abatacept. This is the main pipeline. The same product, obviously, will be launched in India in emerging market. But in India, we'll also have pembro as well as Nivo.

Speaker 3

So that's, right now, the plans in those in those countries.

Speaker 8

Got it. And so with respect to rituximab, now that we are thinking of having a CMO, so will that require, let's say, at least the stability data from CMO site and, hence, maybe more time to sort of get through the regulatory process?

Speaker 3

The CMO that I mentioned is for Abatasat, primarily for the subQ. And, yeah, it will require a tech transfer as well as stability, but we believe that we will be able to be ready for the big quantities, which will be in the beginning of calendar twenty eight. So we should be good by then.

Speaker 8

Understood. And just lastly on the PSI segment where there has been improvement in the gross margin quarter over quarter while we are still lower than the historical gross margin. But if you can just help understand in terms of the current gross margin and how to think about it over the next one to two weeks.

Speaker 2

So the we expect, I think, going forward, PSA gross margin that range of 20 to 25%.

Speaker 8

Compared to 15 currently. Right?

Speaker 2

No. This quarter is 1818%. And because I think here, based on the product mix and then I think leverage of the all the warheads and everywhere, I think the range you can expect, I think, going forward 20 to 25% PSA gross margin.

Speaker 8

Got it. And you also there was a earlier comment of peptide sales within PSA. So if you could quantify how much has that been?

Speaker 11

So

Speaker 3

we build a capacity of up to 800 kg. Naturally, we are not even close right now to this level. And and right now, it's very small, but it will grow as as it will come.

Speaker 8

Got it, sir. Thank you.

Operator

Thanks, Mashar. The next question is from Denali and Panal Lalaria from Access Capital. Panal, please go ahead. Yes.

Speaker 12

Hi. Good evening. So firstly, I would like to understand how your r and d will take shape given that you're developing a few biosimilars like pembrolizumab and daratumumab. And of your r and d budget, how much you would be earmarking for, for, you know, biosimilars and origin? So basically, a nongeneric business.

Speaker 3

Sure. So just to clarify, deratumumab, we are not developing. It's a product that we license from Enlios from a Chinese company. Denosumab was developed by AlvoTech, and we have a partnership with them. And so in that respect, the main products that are done internally is still abatacept that basically finished the clinic of it.

Speaker 3

As you can see, the r and d is about 7% right now of the sales and likely that it will stay in this range for now.

Speaker 12

Sure. Sure. Thanks for that. And secondly, again, on semaglutide. So do you see foresee a situation where the market may not turn out to be as favorable as you think in Canada?

Speaker 12

Because, you know, besides the number of filers, which are increasing by the day, you know, there are perhaps risks, let's say, from a compounding pharmacy, which is intending to enter Canada. And even the innovator has seen volume pressure in several markets. So, you know, there might be a situation where they are aggressive on pricing. So is there a risk of the market deterioration?

Speaker 3

First of all, I mentioned all along, I think that Canada market will be competitive with multiple players. So I also you know, in thirty three years that I'm in pharmaceuticals, I learned not to forecast launch. I always mentioned that it can range from 0 to many, many millions of dollars. So but, yeah, to answer is I anticipate that Canada is going to be very, very competitive.

Speaker 12

Sure. Sorry. If I can

Speaker 3

I anticipate that Canada will be very, very competitive as players will get an approval?

Speaker 12

Right. And if I can, if you don't mind, you know, ask, is there, I mean, any particular price erosion, you know, that we can see from the current level, maybe 85% kind of price erosion that will eventually settle down to?

Speaker 3

I have no clue. I wish I do.

Speaker 12

Alright. Thank you.

Operator

Thanks, Kunal. Participants are requested to restrict the number of questions to just one to ensure that everybody in the line gets an opportunity to interact with management. The next question is from the line of Vivek Agarwal from Citi. Vivek, please go ahead.

Speaker 11

Hello? Am I audible?

Operator

Yes. Sounds clear.

Speaker 13

Yeah. Thanks. Thanks for the opportunity. My question is related to NRT and branded markets like India EM. So the growth was quite growth was quite decent across the board, and it's a really commendable job.

Speaker 13

So just want to understand, how to look at the investment, that you are making behind these markets. So are these sustainable investments, or let's say, it can be cut down in future? Thank you.

Speaker 3

First of all, I don't think you see the investment in emerging market. As we speak, we got the market in certain waves. And the markets that we did not get, we are still managed by Helion, and we are paying them a fee for doing that for us. So, naturally, as market is coming to us, the fee for Helion is going, And therefore, it's the margins are going up because we don't need to pay them. And we are starting to invest.

Speaker 3

The market that we invest are the only the markets that we we got at the beginning, meaning UK and the Scandinavia. So that's so we'd right now, my advice is not yet. It's absolutely not a steady state. We have two more ways to go. And before we go, what I can tell that so far, it's exceeding our expectation, both on the pace of growth as well as on the margin.

Speaker 3

In both cases, it's much better than what we presented internally when we approve the project. So so it's a kind of a good start, I would call it.

Speaker 13

I understand, Erez. And, just a related question here. It's on OpEx, basically. So on absolute basis, how we should look at the OpEx in FY '27? So can it continue to increase, let's say, from '26 level, maybe relatively at a lower pace?

Speaker 13

Or is there any possibility of absolute decline in OpEx, let's say, '27 compared to FY '26?

Operator

Thank you.

Speaker 2

So, Vivek, if you look, this quarter, we have a 30%. And then if you adjust the one off, I think we are close to 29.1% or somewhere. And then for any of modeling, I think we'll be in the June of, like, a 28 to 30%.

Speaker 13

Thanks, Amun. That's from my side.

Operator

Yeah. Thanks, Vivek. The next question is from the line of doctor Harith Ahmed from Aventis Park. Harith, please go ahead.

Speaker 11

Hi. Thanks for the opportunity. Just on rituximab again. So given this is the second, you know, unsuccessful PAI and CRL that we've had, you know, are there any specific challenges related to this facility? I'm asking also because this is a biologics facility and our track record, otherwise, on compliance has been quite excellent in recent years.

Speaker 3

So there's nothing specific per se. We it's all it's obviously as this is a sterile plant, we have we've got queries that are related to the to that nature of of the site. We believe it's addressable. In the case that they will not they will come with another set of questions, what we will do is that we will submit we have a alternate line as a backup, which is FF m two that that we feel that FF m two is the fill and finish, sorry, for for those that are on the line. So we may need to move the product from one line to another in a case that it will not come well on the first one.

Speaker 3

So it's primarily related to the fact that the first line that we have FFM one is some of the design of it raised those queries in also last time. We are addressing it. But if it will not work, we'll have to move to FFM two. I'm not worried on the not getting approval. I'm certain that we'll get approval.

Speaker 3

Just to remind all of us, Rituximab for us was deliberately chosen in order to start the regulatory process on time to make sure that by the time that abatacept will come, batch will will face those kind of stuff. And this is it's serving its purpose, and, hopefully, we can resolve it soon.

Speaker 11

Okay. Quick one on tocilizumab biosimilar. It's been a while since, we got an update on that one. Can you share the status of that program?

Speaker 3

We we don't we are not planning to have it as a global product. Okay. Thank you. We will have it only for India.

Speaker 7

Yeah. Okay.

Speaker 11

Yeah. And then one quick, you know, follow-up on the previous question. You know, the the, you know, cost reductions that we've alluded to in the past, around 500, 600 basis points of of reductions. Are these reflecting to a small extent in the first half numbers, or should we wait for the coming quarters for this to actually show up with the numbers?

Speaker 3

Yeah. I believe so. You can see that despite the fact that Lina is going down, we are maintaining our reasonably our numbers. So it's absolutely a reflection of those mitigations. Of course, the full force of it will come as quarters will come.

Speaker 3

And we can also share the number. So we believe that with SG and A of around 28% and r and d of around 7%, it comes to the famous five to seven that we said, and there is even opportunity for more if we need to. So we maintain that we will we are very, very sensitive to the margins, and naturally, we're discussing it every time, and we will absolutely be very disciplined on those. Thank

Speaker 11

you. That's all for me, sir.

Operator

Thank you. Thanks, Harith. The next

Speaker 6

Yeah.

Operator

In the interest of time, we will restrict the questions, to the next two speakers. Next is Gautam from LEO Capital. Gautam, please go ahead.

Speaker 14

Hi. Hi. Good evening. My question was on the GLP one. Do you only plan to do fill and finish, or do you also manufacture API drug substance substances?

Speaker 14

How much manufacturing capacity do you have, and which are markets are we targeting for this?

Speaker 3

So we have CTO six making the API. I mentioned that the overall potential of all the investments that we put can reach even 800 kg, but we are very, very far from this output at this stage. We don't need also. Just that but we are preparing it not just for semaglutide and liraglutide, but also for 40 something peptides that we identified and we are going to develop either by ourselves or with the partners in the next coming years. So right now, we will have sufficient capacity for the demands that we'll have for the liraglutide, semaglutide in the submissions to the relevant authorities of all the peptides that will be of patents, including tirzepatide.

Speaker 3

That will be obviously an r and d project, but it's very important to submit it in the relevant markets. And we are also making the product we are making the product. We are planning to make it in f q eleven and also with the partners. In general, the approach will be that we will have for every important product in house capabilities as well as partnership capabilities for all kinds of risk mitigations.

Speaker 14

Okay, sir. So can you just, like, expand on the fill and finish also? What's the capacity we have and the the status on that and the markets we are supplying for that?

Speaker 3

Think we discussed it. We have 12,000,000 pens for the simagotides with the partner. We can and then we have two lines of cartridge that will be enough to 11. They can reach even 50,000,000, but right now, it's all theoretical. The cartridge lines are on the way, and they will be assembled and will be ready not for this twelve months, but after.

Operator

Understood. Thank you. Thank you, Gautam. The last question for today comes from Sumeet Gupta from central Centrum Capital. Sumit, please go ahead.

Speaker 15

Yeah. Hi. Thank you. Good evening. Yeah.

Speaker 15

So just one question on the Indian business. So, sir, can you segregate the volume and price growth?

Speaker 3

The volume and the price.

Speaker 2

So is Sumit, the price is, like, in the range of normal 5%, and then the balance growth is, like, mainly from the new products and volumes.

Speaker 15

Okay. So going forward, like, should we expect this to continue, or can we expect any significant growth in volumes also?

Speaker 3

You should expect to continue. We will have new products, volume, and the price will be in that range that MBH shared with you.

Speaker 15

Understood. Thank you.

Operator

Thank you. We reached the end of the call. I now hand the call over to Ritcha for the closing comments.

Speaker 1

Thank you all for joining us today. We truly appreciate your continued interest in Doctor. Reddy's laboratories and the time you've taken to engage with AcuM FY twenty six results. If you have any further questions or need any additional information, please do not hesitate to contact the investor relations team. Have a great day.

Speaker 1

Stay safe, and take care.

Speaker 2

Thank you.

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